DBRS Morningstar Assigns Provisional Ratings to Westlake Automobile Receivables Trust 2023-3

DBRS, Inc. (DBRS Morningstar) assigned provisional ratings to the classes of notes to be issued by Westlake Automobile Receivables Trust 2023-3 (Westlake 2023-3 or the Issuer) as follows:

-- $224,400,000 Class A-1 Notes at R-1 (high) (sf)
-- Class A-2-A Notes at AAA (sf)*
-- Class A-2-B Notes at AAA (sf)*
-- $128,440,000 Class A-3 Notes at AAA (sf)
-- $75,510,000 Class B Notes at AA (sf)
-- $123,340,000 Class C Notes at A (sf)
-- $101,440,000 Class D Notes at BBB (sf)
-- $57,640,000 Class E Notes at BB (sf)

*The combination of the Class A-2-A and Class A-2-B Notes is expected to equal $346,870,000. The allocation of the principal amount between the Class A-2-A and Class A-2-B Notes will be determined at or before the time of pricing (subject to a maximum allocation of 50% to the Class A-2-B Notes) and may result in the principal amount of the Class A-2-B Notes being zero.

CREDIT RATING RATIONALE
The provisional ratings are based on DBRS Morningstar’s review of the following analytical considerations:

(1) Transaction capital structure, ratings, and form and sufficiency of available credit enhancement.
-- Credit enhancement is in the form of overcollateralization (OC), subordination, amounts held in the reserve fund, and excess spread. Credit enhancement levels are sufficient to support the DBRS Morningstar-projected cumulative net loss (CNL) assumption under various stress scenarios.
-- The ability of the transaction to withstand stressed cash flow assumptions and repay investors according to the terms under which they have invested. For this transaction, the ratings address the timely payment of interest on a monthly basis and principal by the legal final maturity date for each class.

(2) The DBRS Morningstar CNL assumption is 11.25% based on the expected pool composition.
-- The transaction assumptions consider DBRS Morningstar’s baseline macroeconomic scenarios for rated sovereign economies, available in its commentary, “Baseline Macroeconomic Scenarios for Rated Sovereigns: June 2023 Update,” published on June 30, 2023. These baseline macroeconomic scenarios replace DBRS Morningstar’s moderate and adverse Coronavirus Disease (COVID-19) pandemic scenarios, which were first published in April 2020.

(3) The Westlake 2023-3 Notes are exposed to interest risk because of the fixed-rate collateral and the floating interest rate borne by the Class A-2-B Notes.
-- DBRS Morningstar ran interest rate stress scenarios to assess the effect on the transaction’s performance, and its ability to pay noteholders per the transaction’s legal documents.
-- DBRS Morningstar assumed two stressed interest rate environments for each rating category, which consist of increasing and declining forward interest rate paths for a 30-day average Secured Overnight Financing Rate based on the DBRS Morningstar Unified Interest Rate Tool.

(4) The consistent operational history of Westlake Services, LLC (Westlake or the Company) and the strength of the overall Company and its management team.
-- The Westlake senior management team has considerable experience and a successful track record within the auto finance industry.

(5) The capabilities of Westlake with regard to originations, underwriting, and servicing.
-- DBRS Morningstar performed an operational review of Westlake and considers the entity to be an acceptable originator and servicer of subprime automobile loan contracts with an acceptable backup servicer.

(6) DBRS Morningstar used the static pool approach exclusively because Westlake has enough data to generate a sufficient amount of static pool projected losses.
-- DBRS Morningstar was conservative in the loss forecast analysis performed on the static pool data.

(7) The Company indicated that it is subject to various consumer claims and litigation seeking damages and statutory penalties. Some litigation against Westlake could take the form of class action complaints by consumers; however, the Company believes that it has taken prudent steps to address and mitigate the litigation risks associated with its business activities.

(8) Computershare Trust Company, N.A. (rated BBB and R-2 (middle) with Stable trends by DBRS Morningstar) has served as a backup servicer for Westlake.

(9) The legal structure and expected presence of legal opinions that will address the true sale of the assets to the Issuer, the nonconsolidation of the special-purpose vehicle with Westlake, that the trust has a valid first-priority security interest in the assets, and the consistency with DBRS Morningstar’s “Legal Criteria for U.S. Structured Finance.”

The collateral securing the notes consists entirely of a pool of retail automobile contracts secured by predominantly used vehicles that typically have high mileage. The loans are primarily made to obligors who are categorized as subprime, largely because of their credit history and credit scores.

Westlake is an independent full-service automotive financing and servicing company that provides (1) financing to borrowers who do not typically have access to prime credit-lending terms for the purchase of late-model vehicles and (2) refinancing of existing automotive financing.

The ratings on the Class A-1, A-2-A, A-2-B, and A-3 Notes reflect 40.30% of initial hard credit enhancement provided by subordinated notes in the pool (31.05%), the reserve account (1.00%), and OC (8.25%). The ratings on the Class B, Class C, Class D, and Class E Notes reflect 33.75%, 23.05%, 14.25%, and 9.25% of initial hard credit enhancement, respectively. Additional credit support may be provided from excess spread available in the structure.

DBRS Morningstar’s credit rating on the securities listed below addresses the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents.

DBRS Morningstar’s credit rating does not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations.

DBRS Morningstar’s long-term credit ratings provide opinions on risk of default. DBRS Morningstar considers risk of default to be the risk that an issuer will fail to satisfy the financial obligations in accordance with the terms under which a long-term obligation has been issued. The DBRS Morningstar short-term debt rating scale provides an opinion on the risk that an issuer will not meet its short-term financial obligations in a timely manner.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factor(s) that had a significant or relevant effect on the credit analysis.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (July 4, 2023) at https://www.dbrsmorningstar.com/research/416784.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology applicable to the credit rating is Rating U.S. Retail Auto Loan Securitizations (May 9, 2023; https://www.dbrsmorningstar.com/research/413731).

Other methodologies referenced in this transaction are listed at the end of this press release.

The DBRS Morningstar Sovereign group releases baseline macroeconomic scenarios for rated sovereigns. DBRS Morningstar analysis considered impacts consistent with the baseline scenarios as set forth in the following report: https://www.dbrsmorningstar.com/research/384482.

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

DBRS Morningstar had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the credit rating process.

The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting us at [email protected].

DBRS, Inc.
140 Broadway, 43rd Floor
New York, NY 10005 USA
Tel. +1 212 806-3277

The credit rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

-- Rating U.S. Structured Finance Transactions (February 6, 2023; https://www.dbrsmorningstar.com/research/409449).

-- Operational Risk Assessment for U.S. ABS Servicers (July 20, 2023; https://www.dbrsmorningstar.com/research/417415).

-- Operational Risk Assessment for U.S. ABS Originators (July 20, 2023; https://www.dbrsmorningstar.com/research/417416).

-- Legal Criteria for U.S. Structured Finance (December 7, 2022; https://www.dbrsmorningstar.com/research/407008).

-- Interest Rate Stresses for U.S. Structured Finance Transactions (June 9, 2023; https://www.dbrsmorningstar.com/research/415687).

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].